Netflix Streams Higher and an Iconic Brand’s Fall From Grace 7/17/23

0:01Right now on fast from squid games to big gains shares of Netflix are on a tear this year even And as two historic strikes grind Hollywood to a halt. So why is this media giant able to buck this trend? And can the strength continue past earnings? Plus, once the bluest of the blue chips, AT &T is now trading at levels not seen since the early days of the Clinton administration. Can anything reach out and save this one? And later, harvesting gains in grains, Ford's latest flop, and even luxury seems to be losing its luster. The trades behind all these stock moves coming up. I'm Melissa Lee. This is Fast Money.

0:33We're live at the Nasdaq Market Site on the desk tonight. Karen Feynman, Steve Grasso, Guy Adami, and Chris Verone, head of technical analysis at Strategas, a Baird company. And we start off with Netflix streaming past the competition in a big way, the media giant rising more than 3 % at its highs and closing the day up nearly 2%. That as we await the company's second quarter earnings report on Wednesday. The move in Netflix is stark contrast compared to other titans in the media space, Paramount, Disney, Warner Brothers, Discovery, all falling today. Disney's losses wiping out all its gains, in fact, for 2023.

1:03The traditional studios reeling under the pressure of a second strike in Hollywood. Actors joining writers on the picket line, demanding higher pay and protections against AI. This is a live look at the strikers right now in Los Angeles. So does Netflix's vast library of content, its reliance on unscripted shows and international pipeline insulate it from the pressures that plagues its rivals, Guy? Certainly feels that way. And again, the valuation on top of it. But the valuation, I think, is justified at its trough when it was trading 185, 190 or so. The valuation was less than a market multiple.

1:38We all talked about how cheap it was. Now at 30 times, it's getting more in line with where it's traded historically. But you probably still have, I don't know, 25 % EPS growth on a stock that continues to grind higher in earnings. I'm interested in what Chris has to say, but this current level, this 450 level-ish that we're trading at, pretty much a 50 % retracement of the all-time high we saw in the fall of 21 and that trough level that I just talked about. So this is a logical place for it to pause, but I still think it grinds higher from here. Well, I mean, there's no question that the trend of the stock is up.

2:10But remember, it was a year ago, I think last April, where you broke down from this 500-450 zone. There's a massive gap on this chart here. We're up about 180 % off the lows. We're right into that 50 % retracement you talk about. You've only been this overbought on the weekly RSI a handful of times in the stock's life. I think if you're going to look for a logical place to take chips off or pause or consolidate, this is it. We're going into earnings 30 percent above the 200-day moving average here as well. I think that's risky into a tricky seasonal period where you start to lose the support of the calendar here.

2:43You know, I thought of something very ironic. Who's writing the picket signs for the writers that are on strike. So clever. So I agree with Chris. I think this is a great spot where I think it's a little bit overdone here. You've had enough of this built in word password sharing or not share. You've had a run up. You've had the king of content. It used to be Disney was the king of content. Now Netflix is the king of content. For me, I think this is hugely overextended. I would take it off the table. I mean, the question, too, is, you know, how long do you continue to give Netflix the sort of premium of the others?

3:20Or is this sort of a, you know, we see the strike, Netflix is going to be the winner, and so you afford Netflix that premium, and that ends there. Or is there a continual sort of, the more time goes on, the more likely that somebody might churn off of another subscription and churn on to Netflix. Netflix isn't an actual beneficiary to that degree. I think all of that is true. And I think that, you know, ad supported and password sharing are not over, I think. Right. I think there's still room to go there. And I still I think, as you said, the strike benefits them. Also, going into the strike, they had a gigantically, gigantic lead of subscribers.

4:00But more importantly, they had a balance sheet that can withstand and can grow. And I mean, so they're in a very different position. All that having been said, I can't buy it here. I'm long. I'm really stuck. I would consider selling upside calls. I've done that once before and had to buy them back higher. So I just it's hard for me to get around the multiple. You believe in the story. I do believe in the story, but it doesn't mean multiple. I don't I don't believe that's happened in other stocks. Apple as well. The I mean, it's a premium company. Shouldn't you not be long? it. You've explained that to me.

4:36Yes, I know, and I know, and I, you know, it's hypocritical of me, but I do think they will win. But one other thing that I think could happen, consolidation in the industry, I do think they'll be a beneficiary of that. I mean, this really underscores the divide between Netflix and the others in terms of the pressures. I mean, we were just talking about Disney the other day, the immense pressure that it feels across all of its business, but particularly DTC when they're trying to cut costs. This is not the time. I mean, these groups are striking at kind of the wrong time. I mean, if they wanted to strike, they should have had a strike during the pandemic or when things were good for Disney.

5:11Right, and in terms of the timeline for the company, it's the worst possible time as well. So this is something that Tom Rogers talked about last week. They're two years away from probably Disney figuring out some of the errs of their ways. This is a stock, by the way, we're close to 85 and a half. I mean, we're within like a dollar now of a seven, eight year low in this stock, which is pretty unbelievable if you think about it. So the value trap that Disney's been has been exactly that. I don't think it's troughed yet either, quite frankly. I mean, this is pandemic lows, right? It's trading at pandemic lows, which is crazy.

5:45When the parks were closed. Right. When everything was closed, the world stopped. They didn't have any streaming. Right. But they started to have streaming. They did start to. They started, right. And money was free. Money was free. And they were growing. How much money do they make on a park, though, Karen? It's a huge amount of money. And this has been totally discounted where it's trading, to your point, at the pandemic bottom or thereabouts. Yeah, I can't explain that. And everything is just thrown off the side as if this stock is worth nothing anymore. It's beyond me, but it still does not rally.

6:15The chart's terrible, as we know. This$80 level has been the line in the sand for nearly a decade here. But if you look at relative terms, Disney relative to S &P, you're making about 15 or 20 price lows there. So I think the question is, you know, we all kind of agree that, hey, maybe Netflix is frothy here. But what do you switch into? The viable alternatives are not very alternative. Is there, though, a buy the rumor, sell the news? I mean, he did telegraph this quarter and probably subsequent quarters are going in that Eiger interview. Right. He did telegraph that. So I don't know if everybody knows that now already.

6:49Can they can they just report a terrible, horrific quarter? Do you need to make some sort of bottom off of that, though, or new low or move lower off of that? When you look at the damage in the chart, this is a bobbing process that will take months and months and months and months, not days. And we know the bad news yet the stock continues to still move lower. I want to see days where the stock is resilient on bad news. That has just not been the case here yet. You saw it briefly the day, I think it was David Faber's interview we talked about on show. I think the stock closed up a little north of 90 bucks, 90 and a half.

7:18It's giving it all back and then some. The stock doesn't trade well. It's telling you that there's a problem there. So I think they report on the 9th of August, if I'm not mistaken. I don't see a meaningful rally in this name until you get through earnings, which is obviously a few weeks away now. Short term, though, I mean, to Chris's point, I mean, if you're going to cycle out of some of the ones that are more wounded and could be even more wounded in a strike scenario, then should Netflix be at least the short term winner, at least for the short term right now? Yeah, I mean, Netflix is, to Chris's point, there's nothing to cycle into.

7:49Everything else has gotten decimated and continues to not get a bid. So I think that the answer is maybe you don't cycle into a competitor. You cycle into a different stock. It depends on if you're running a fund or trading your own money. So if you're running a fund, then you're going to have to cycle into something that's either cash or competitor. If you're running your own money, you just get out of Netflix and wait. For more on what the SAG after strike could mean for Netflix and other media companies, we're going to check in with Julia Boorstin. We won't go to her quite yet. She's in front of Paramount.

8:22for there's a little hiccup. If you're standing in front of a picket line, there could be things that happen. But I think Steve brings up a good point. You said, not this one. So if your mandate were some kind of media company, what would that be? Oh my God. Well, I used to own Paramount. That was terrible. And I don't know if what happened with National Amusement in technical default, I don't know if that makes the Paramount sales story more ripe. I don't know. Maybe. I'm not sure who'd want to buy them. Maybe I'd go with Comcast. It's not great, but pitch the parent for a little bit. All right.

8:57Well, let's check in with Julia Borsten. She is out in Los Angeles. And as I understand it, with an actor. Julia, take it away. That's right. I'm here outside Paramount's Law. I'm joined by Danny Trejo. In addition to being an actor, has a line of taco stores and restaurants here in Los Angeles. And music. And many things. And so you came here to support the actors. Tell us what your perspective is on this strike. Well, all we're asking is for everybody to be fair. That's it. Just fair. And, you know, everything's gone up, but our wages. And so it's like, you know, we're all not Tom Cruise. You know, so it's like we got to support our money.

9:36We got to support. Hey, Newsom. Yeah, call me. So you're leaving a message for the governor there. What's your message to him? To call me. How concerned are you about artificial intelligence impacting the future as well as streaming revenues? Let me tell you something. I'm worried about regular intelligence. You know, now it's like they're going to like, that means they can use our image or our, for whatever. You know what I mean? And it's like, so now residuals have basically slowing down. And it's like, well, wait a minute. Give us a piece of that pie too, you know? So right now it's like all the produce, they're making some dough.

10:15You know, and the only thing that's working is nobody's working. Nobody's working right now. You can understand, this affects a lot of people. This affects every restaurant around here. You know, this affects every gardener around here. And in fact, my gardener's at my house right now waiting for somebody. And are you concerned about AI either replicating actors or taking more actors jobs? Well, you know what? Anything that takes away is not good. You know, I mean, when everybody's excited that, hey, we got a robot that can do this. Good. You just took Juan Sanchez out of a job. You know, so it's like for me, it's like we've got to remember that we're all on this.

11:02It's like we're all on the Titanic looking for a good seat. You know, we got to take care of each other all over the world. And how long do you think this strike could last? I hope not too long. On income taxes coming up pretty soon. I know I owe a lot. Tell them, hey, President Biden, you're going to have to wait for your money. Well, I understand you're here to bring water and tacos to some of the striking actors. We appreciate you talking to us today. Danny Trejo, really appreciate it. Thanks so much. Melissa? Thank you very much, Julia, for one of the most colorful interviews ever to grace CNBC airwaves.

11:40Julia Borsten, you never know what you'll find in front of Paramount Studios, I guess. I had to myself Google Danny Trejo. I don't know. Stop it. Come on. But amazing. He's one of the most prolific of American actors, according to IMDb. In 2002 alone, he did nine films. Nine films. Wow. That's I wouldn't have thought he would be that efficient. I don't know, I'll just say. He's 79 years old. I mean, he did juggle a couple of things on that interview. He did. He was calling the governor. It was interesting, though, how he said we have to help each other out around the world because that's where Netflix has the edge, the international aspect of it.

12:17Production can go on in South Korea or in Europe. There are no writer's strikes, an actor's strike plaguing production. And I think there was a CNBC.com article talking about exactly that, how they're sort of incubated, they're protected from what's going on here vis-a-vis exactly that. By the way, Danny Trejo was in the movie Heat, which I know you're a huge fan of. I mean, Pacino, De Niro, Ashley Judd, Val Kilmer, Tom Sizemore. Oh, my goodness gracious. And you didn't know that? It upsets me to no end. But I'll say 80 percent of the people that are part of these unions, I mean, think about it.

12:52They're living paycheck to paycheck. So it's not in my opinion, it's nice to see at least they're trying to get there. Just do having been left on the wayside for the last 15 or 20 years. Coming up, pickup price cut Ford's F-150 lightning truck getting a whole lot cheaper. The new sticker price and how a looming worker strike could impact the auto industry. Next, plus we are mowing into the agricultural trade and move out of Russia having a big impact on grain prices. Can this group be the breadwinner of your portfolio? We'll debate that when Fast Money returns.

13:32Welcome back to Fast Money. Shares of Ford dropping almost 6 % as the automaker slashes prices on its electric F-150 Lightning truck by as much as$10 ,000. And a looming worker strike might just add to the troubles in the industry. Phil LeBeau joins us now with the latest. Phil. Melissa, this was not just a little price cut on the F-150 Lightning. this was a substantial announcement from Ford. The price cuts, depending on the model and the entry price level for that particular model, down 7 % to 16%. That's the amount being cut off the MSRP. The base price, by the way, falling almost$10 ,000, under$50 ,000.

14:09Yes, the base F-150 Lightning was at one point$59 ,000. Now it's down to$49 ,000. And if you are Ford and you're looking at these cuts that have happened here, the shares obviously over the last couple of days have just hit dramatically. Keep in mind that Ford is the number five U.S. EV seller right now. They are not in the top three. They are number five in terms of the number of EVs that they've sold, despite the investments that they've made into the electric vehicle platform at Ford. The key here to keep in mind as you look at the UAW talks is that while a lot of this is the established internal congestion engine vehicle business and what's happening there, for Ford, GM, and Stellantis, they want to close the pay gap between not only themselves and the foreign automakers, their U.S.

15:01plants, but look at Tesla. The estimate is that Tesla's all-in hourly wages for their line workers,$45,$63 to$67 for the big three. So you see the difference there. Three things are going to be key in the UAW contract talks. And remember, that contract ends in mid-September. Job guarantees, because it takes fewer workers to build an electric vehicle. Cost of living adjustments. They're not in the current contract. They would like those added into the contract. Easy to see why, given what we saw with inflation in the last year. And then finally, what the auto workers would like to see is an end to this wage tier level that was put in effect as the companies came out of the government mandated bankruptcies, at least Stellantis, then Fiat Chrysler and General Motors had that.

15:49And then basically Ford came in and matched it as well. They would like to see an end to that. One last note, Bank of America estimated if there is a strike, a one-week strike, and we don't know if it's going to be a short strike, if there is any strike at all, or it could be a long one. But if it was a one-week strike, Bank of America estimates the cost to the automakers, to each automaker would be somewhere between$470 million and$770 million, depending on the automaker. That gives you some indication of what's at stake here when this contract comes up mid-September. Melissa? Phil, no pun intended, changing gears.

16:23Tesla this week, the stock, we all know what it's done. Wells Fargo had a note. They raised their price target. But remember in the fall, Tesla sort of cautioned people, our margins are going to start coming down. I think margins at the time were 23 percent. We're not going to get down to legacy automakers levels, which I think are 16 percent, but we'll probably come in somewhere between sort of 17 and 21. The Wells Fargo notes suggest that 17 and a half percent is sort of in the running here. Is that a warning sign or is that just, you know, with all the price cuts we're seeing, the natural course of things?

16:56The natural course of things. And that's the expectation that this is the trough that you're going to see in gross auto margins, excluding zero emission vehicle credits for Tesla, about 17 and a half percent. I talked to a couple of analysts today who said, look, if this has a 15 or a 16 handle on it, it's going to put some pressure on people and have them questioning whether or not it is the trough in terms of gross margins for Tesla. But the expectation is this is the trough and then they start to ramp back up again, especially as they boost their scale in the second half of this year. And increasingly, people are saying we think that they'll deliver maybe one point nine million vehicles or two million vehicles if everything goes well.

17:39Remember, their guidance at this point is one point eight million vehicles. Phil, walk us through and back to Ford. Sorry to switch gears again. But getting back to Ford, I mean, if their wage costs are going up and, you know, some of their input costs have probably come down year on year. But can you walk us through how this factors into margins as a whole? I mean, they seem to indicate that there's more room for even further price cuts if needed. Yes, they believe that there are. And they believe that the increase in production, the supply chain improving and their supply costs going down all allow them to put these price cuts in place and the volume will make up for what they may lose in terms of margin.

18:23I'm not sure everybody agrees with that. I think, look, at the end of the day, whether or not what the impact is on margins, they're still a long ways from the EV business being profitable. But separate from what happens with margins, Melissa, when you cut prices 7 % to 16%, you were clearly trying to stoke demand. And I reached out to some dealers today, some Ford dealers, who have said, yeah, we need demand. It's not a supply issue because there are lightnings that are available for people to buy. But they need greater demand. And if you think back to a year ago, Melissa, they had so much momentum behind the F-150 Lightning.

18:58Kind of feels like it's been squandered away. It really does. I mean, you do not see them in large numbers out on the road. You see them. And I see them more here in the Midwest than I do elsewhere. But you don't see them in huge numbers. And I think that's what I think Ford needs to have the huge numbers and the production and the sales increase. They definitely need that. Phil, thanks. Always good to see you. Phil of both. You bet. And this, of course, as Tesla announces it produces for Cybertruck rolled off the production line over the weekend. Karen, it really does seem to underscore the lack of demand that for me.

19:32When Tesla came out with its price cuts, there was such, you know, oh, they're doing this because nobody wants the wants the cars. They have to cut the price. But now Ford is taking a page out of the Tesla playbook. Let's cut demand, cut price and see if the demand can. Yeah. I also I can't help but wondering, though, if it is somewhat some cosmetic something or other. in front of the negotiation, right? So, okay, these things were selling like hotcakes. Maybe they aren't now. So you have to take a pay cut or we can't give you as much of a pay increase. I don't know. I just, I wonder. It's odd.

20:03It made me think, why? The timing. Yes. So, but clearly it's not good for GM either, right? I mean, anybody's going to be offering any product in that space. I'm a little bit surprised. I think Phil touched on it. The simplest answer in this business is often the right one. You don't cut prices when demand is robust. Demand is clearly not robust. I think the chart reflects that. We're down 8 percent over the last three days on Ford. Even in the most benign of corrections, you still have another 8 percent to go before the 200-day moving average. I think it's a very reasonable target here. Stellantis is a better chart.

20:38Toyota is a better chart. Honda is a better chart. Would you have said the same thing about Tesla when it cut its prices, though? Yeah, I probably would have. And the market would have quickly said that was the incorrect interpretation. but very different pictures and very different phases of their lives here. I think when you look at the message from Ford, it suggests that demand is not there. I traded Tesla. I'm out of the name. That was a profitable trade. I traded Rivian. That was a great trade. Nosebleed territory. I'm out of the name currently. When we look at Ford and we talk about margins, Ford wants to run to an 8 % margin on their EVs.

21:15they're going to lose$3 billion on their EVs this year. Long way to go. They're a long way from Kansas, so to speak, right? That's 2026. That's if they can chop wood and get to that goal. If you're going to buy the EVs, you buy the EV direct players. You don't buy the Fords or the GMs yet. Do you buy anything in the auto space, Guy? Wow. You know, the short answer is Ford for a trade, it could be interesting. But to Steve's, to Steve's, to Chris's point, it's got some room on the downside. In March of 1997, Ford was a$14.10 stock. Today is July of 2013. Now, obviously, it's gone up and down, but it's dead money.

21:57You've got to trade around levels, and this is probably not a level to get along at yet. I think you buy the parts. Look at Borg Warner. I mean, these are names that could benefit in a strike here as well. Borg Warner is a very good chart. Looks like one of those big industrials with the big bases. But this raises a really interesting dichotomy that you're seeing prices fall at the same time labor has the upper hand on wages. And we know wages are sticky because they're set by contract and we know prices are more volatile. I don't think that's particularly great for margins and perhaps what the stock suggests here as well.

22:26All right. There's a lot more fast money to come. Here's what's coming up next. Agricultural action. Farming stocks harvesting gains as grain prices soar. So will this trade be a cash crop? The details next. Plus, banks' earnings underway. And while the news has been good, the stock moves tell a different story. Will tomorrow's reports turn things around? What to expect out of those reports ahead? You're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.

23:10Welcome back to Fast Money. Wheat prices spiking early in the day after Russia terminated a U.N.-backed black sea grain agreement, putting global supply at risk. The grain did end the day lower. Turkey's president tried to assuage some fears, saying he believes Russia's Vladimir Putin has plans to restart the deal. Ag stocks jumping on the news today. A Deco Agro, Bungie and Archer Daniels all moving higher. Steve, you stepped in. Yeah, Archer Daniels. And this was supposed to be hypothetically a day trade for me where I figured I'd catch the bounce off of the headline. I'm going to stay a little bit longer, but it's not going to be a long term investment because these headline driven moves are usually just that where they will subside.

23:51Somehow there'll be workarounds. Somehow the wheat production will still flow somewhere else or people will adapt. So I'm in it right now, but I don't intend on being in it for the long haul. You know, Steve, I think what's notable, this move has been percolating for a few weeks. Today was the fourth two standard deviation move for wheat in the past three weeks. So when we start getting these outsized daily moves, it raises the likelihood of something larger brewing. I like the bungee chart here a lot. Finally back above 200 a day for the first time in months and months and months. A lot of these were in these eight, nine month downtrends that they now broke.